MBIA Barred From Paying Interest On Bonds

The New York State Department of Financial Services steps in to prevent a payment by the cash-strapped insurer.

NEW YORK ( TheStreet)-- MBIA Inc. ( MBI) was barred by its chief regulator, the New York State Department of Financial Services (NYDFS), from making a scheduled interest payment on bonds issued by a subsidiary, the cash-strapped bond insurer announced in a regulatory filing Tuesday.

MBIA's nonpayment on the 14% fixed-to-floating rate surplus notes, does not constitute a default, and the company will pay without accruing any additional interest as soon as it receives approval to do so. A spokesman for the NYDFS had no immediate response to an email.

The regulator's decision did not come as a big surprise to analysts following the company, who had written research in recent days downplaying the implications of such an event.

MBIA shares nonetheless tumbled briefly after the announcement, falling from $8.31 to an intraday low of $7.79--the first time this year they have dipped below the $8 mark. They recovered some of those losses, however, and were back above $8 a few minutes later.

MBIA, a bond insurer that ran into trouble due to the subprime housing collapse, is attempting to reorganize by walling off its subprime exposure from its healthier municipal bond insurance business. It has also sued Bank of America ( BAC), arguing Countrywide Financial, which the Bank of America acquired in 2008, misled MBIA over billions of dollars' worth of mortgage bonds.